Turkey eyes slice of Iranian trade pie after sanctions relief

The much-awaited nuclear deal with Iran will mark a new stage not only for the international community but also for the geopolitical dynamics, especially in terms of Turkey’s standing in the region.

On June 14, Iran signed a deal entitled as “Joint Comprehensive Plan of Action” with five permanent members of the U.N. Security Council (the U.S., UK, France, Russia and China) plus Germany, to curtail much of its nuclear infrastructure in return for ending draconian sanctions built over the past nine years and targeting its economy.

The first reaction of Turkey, who was supporting a diplomatic solution to this issue, was to hail the deal as being primarily in favor of Turkish economic interests, and to state its key importance for the stability, security and peace in the Middle East.

Turkey and Iran share the same land border that has been intact since 1639.

Between 2009-2010, Turkey and Brazil had offered to mediate between the West and Tehran for the denuclearization issue, although the attempt failed at the end because of the lack of political willingness.

In a news conference on June 14, Foreign Minister Mevlut Cavusoglu said that transparent implementation of the deal would be vital, and that the easing of sanctions against Iran would also bring economic benefits to Turkey, which is one of the major trading partners of Iran.

But, Cavusoglu warned, Iran has to play a constructive and positive role in regional conflicts, especially in Syria, Iraq and Yemen, by abandoning sectarian aggression and emphasizing political dialogue as a brother country.

Iran and Russia are known as the main supporters of the Assad regime in Syria during the civil uprising.

Likewise, Turkey’s Finance Minister Mehmet Simsek tweeted, saying, “Iran nuclear deal is great news for the Turkish economy. It is likely to boost trade and investments between the two countries.”

Experts interviewed by Al Arabiya News said that this process would trigger a surge in Turkish exports to Iran, as the bilateral trade between the two countries may leap from 13.7 billion dollars in 2014 numbers to 35 billion dollars by the end of next year and reach to 90 billion dollars within five years.

In January, the two countries signed the Preferential Trade Agreement (PTA), which is expected to come into effect this year. PTA will decrease custom duties in 265 products in bilateral trade to a great extent, and it will increase Turkish exports in automotive sub-industry as well as food, chemical and petro-chemical industries.

Riza Eser, regional manager for Iran at Turkey’s Kibar Holding, said even during the embargo period, his company carried out successfully its trade relations with Iran, by exporting iron and steel and importing iron ore and aluminum.

Iran remains the 10th biggest market that Turkey exported goods to in 2014.

“If the banking activities are quickly normalized after the lifting of the sanctions, our trade volume with Iran will be significantly boosted,” Eser told Al Arabiya News.

Another bonus for Ankara would be using its geopolitical proximity to Iran for the benefit of energy resources.

Being the only market for Iranian gas exports, Turkey imports around 10 billion cubic meters (bcm) from its neighbor, while once the embargo in Iran ends, the oil and natural gas prices are expected to decrease, which will not only strengthen Turkey’s profit margin, but will also render Turkey a key transit route to convey Iranian energy resources to Europe.

Mehmet Ogutcu, chairman of the Bosphorus Energy Club in Istanbul, said that importing Iranian gas through the notorious “take or pay” contract obligates Turkey to pay the highest price for gas, while Russian, Azeri and Kurdish gas being much lower.

“Iran wants to sell more gas to Turkey because; it is in geographical proximity, there is already an export infrastructure in place, it is the only growing gas market, with faster energy demand growth– at 6 percent, second to China,” Ogutcu told Al Arabiya News.

However, Ogutcu added, unless a significant price discount is offered Ankara is not willing to bring more Iranian gas because Azeri and Kurdish gas is less expensive.

Turkey will benefit from the removal of sanctions in the foreseeable future, Ogutcu said.

“Most international firms will prefer to operate in Iran through the Turkish door– at least initially until full confidence will be achieved. Ankara and Tehran do not see eye to eye on regional issues and need to try converging positions or minimise their differences so that a common approach could possibly be forged to mutual benefit,” he added.

Turkey is well aware that the deal creates a regional challenge in the long run. In view of addressing unintended side effects of the deal, Turkey should find ways to establish a solid and strategic cooperation with nuclear weapons-free Iran.

Aaron Stein, an associate fellow at Royal United Services Institution (RUSI) who specializes on Iranian and Turkish nuclear decision-making, said that Turkey and Iran have a very pragmatic and interests driven relationship, and that the two sides are completely at odds in Syria and Iraq, while having co-dependent energy relationship and actively exploring ways to deepen trade ties.

“I expect much of the same now that the easing of sanctions will ease restriction on trade,” Stein told Al Arabiya News.

However, Stein said that the nuclear file does not appear to be controlled by the Iranian Revolutionary Guard Corps and hardliners that make Syria and Iraq policy.

“I don’t expect to see any real changes to Iran’s regional strategy after the agreement. This agreement was about one thing: rolling back and monitoring Iran’s nuclear program in exchange for sanctions relief,” he added.

According to Stein, Turkey has a very large role to play in Iraq and Syria in the near future.

“Turkey stands to benefit from this agreement economically, but it will still work to counter Iranian influence in conflict zones. The EU and the U.S. share this goal,” he noted.

Emboldened Iran?

However, Sinan Ulgen, a former Turkish diplomat who now chairs the Istanbul-based Centre for Economics and Foreign Policy Studies (EDAM), thinks that although the agreement has by and large been welcomed by Turkish authorities, the fear is that Iran would be emboldened following the lifting of the sanctions and with growing resources it could pursue an even more aggressive foreign policy in the region.

“This would certainly have an impact on Tehran’s policies in Syria and in Iraq and could translate into a more polarized sectarian strife in the whole region,” said Ulgen.

In this context, Ulgen pointed out, Turkey could indeed play a role of mediation provided that it is able to return to its more secular diplomacy.

“Such a Turkey could transcend the secular divides of the region and could establish effective dialogue both with Saudi Arabia and with Iran,” he added.

According to Ulgen, even if Iran were to fulfill its commitments under the deal, Tehran’s relations with the West will continue to be problematic, and personally he doesn’t expect a fast improvement in these relations given the nature of the Iranian regime and the continuing anti-Americanism of the Iranian leadership.

“So there is no risk of Iran replacing Turkey as a partner of the West in addressing the regional issues,” he noted.